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Australia’s biggest oil companies plot £42bn megamerger

Woodside's Thylacine platform near Port Campbell
Woodside's Thylacine platform near Port Campbell

Australia’s biggest oil companies are plotting a £42bn mega-merger as a wave of takeovers sweeps the fossil fuel industry.

Woodside and Santos both confirmed they were in early stage talks about a combination that would value the merged business at around A$80bn.

If it comes to pass, it would be the third oil mega-merger in as many months. US oil giant ExxonMobil announced plans to buy Texas-based Pioneer Natural Resources, a leading player in the shale boom, for $60bn in October.

Weeks later rival Chevron said it was buying fellow US producer Hess for $53bn.

Big mergers are sweeping the oil and gas industry as businesses seek the scale needed to invest in adapting to net zero.

There has been speculation that BP and Shell, Britain’s two national champions, may be caught up in the wave of dealmaking, though BP chief Murray Auchincloss downplayed talk of a merger in October.

The potential deal between Woodside and Santos could have major implications for Britain’s energy supplies as Australia produces around one-tenth of the world’s liquefied natural gas (LNG) supplies. That places it alongside the US and Qatar as one of the biggest exporters.

The UK and other European nations have become more reliant on tankers of LNG since Vladimir Putin ordered the full-scale invasion of Ukraine, as the continent shifts away from piped gas from Russia.

Last year Woodside was responsible for sending the first LNG tanker from Australia to Europe in 13 years, as shortages pushed up prices and attracted cargos from around the world.

Although the US was the UK’s biggest source of LNG last year, threats of strikes at Australian export facilities pushed up global prices earlier this year.

Callum Macpherson, an analyst at Investec, said the wave of dealmaking in the oil and gas sector should ultimately lead to cheaper energy.

He said: “Will it lead to prices going lower or higher? To the extent that this is bringing stronger balance sheets into the equation, that is probably going to help production more generally, and that tends to make supply more resilient.”

The mergers come at a time when much of the balance in markets is controlled by Opec, the cartel seeking to trim production to prop up energy prices.

They are also taking place against the backdrop of the Cop28 conference, a global summit of politicians and business leaders aimed at striking deals to reduce carbon emissions.

Woodside said in a statement: “Discussions remain confidential and incomplete, and there is no certainty that the discussions will lead to a transaction. As a global energy company, Woodside continuously assesses a range of opportunities to create and deliver value for shareholders.”

Santos said it “has engaged in preliminary discussions with Woodside regarding a potential merger”.

It said: “Santos is assessing a range of alternative structural options with a view to unlocking value.”

Both companies’ shares rose by less than 1pc on the news.